accounting for electricity companies

8/3/2019 Accounting for Electricity Companies

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Accounts of Electricity Supply Companies 12.3

The term Capital Base used above, can be defined as:

(a) the original cost of fixed assets available for use and necessary for the purpose of theundertaking less contributions, if any made by the consumers for construction of service

lines and also amounts written off;

(b) the cost of intangible assets;

(c) the original cost of work in progress;

(d) the amount of investments compulsorily made agaisnt contingencies reserve; and

(e) the monthly average of the stores, materials, supplies and cash and bank balances heldat the end of each month of the year of account not exceeding in the aggregate an

amount equal to one quarter of the expenditure.Less:

(i) the amount written off or set aside on account of depreciation of fixed assets and

amounts written off in respect of intangible assets in the books of the undertaking;

(ii) the amount of any loans advanced by the Board;

(iii) the amount of any loans borrowed from organisations or institutions approved by the

State Government;

(iv) the amount of any debentures issued by the licensee;

(v) the amount of security deposits held in cash;

(vi) the amount standing to the credit of the Tariffs and Dividends Control Reserve;(vii) the amount set apart for the development reserve; and

(viii) the amount carried forward in the accounts of the licensee for distribution to the

consumers.

(B) Pratical Questions :

Question 1

Electric Supply Ltd. rebuilt and re-equipped one of their Mains at a Cash Cost of Rs.

40,00,000. The old Mains thus superseded cost Rs. 15,00,000. The capacity of the new Mainis double that of the old Main.

Rs. 70,000 was realised from sale of old materials. Four old motors valued at Rs. 2,00,000salvaged from the old Main were used in the reconstruction. The cost of Labour and Materials

is respectively 30% and 25% higher now than when the old Main was built. The proportion ofLabour to Materials in the Main then and now is 2 : 3.

Show the Journal entries for recording the above transactions, if accounts are maintainedunder Double Account System. (8 marks) (IntermediateNov. 1999)


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Accounting12.4

Answer

Electric Supply Ltd .Journal Entries

Dr. Cr.

Rs. Rs.

New Main Account Dr. 20,95,000

Replacement Account Dr. 19,05,000

To Bank Account 40,00,000

(Being current cost of replacement charged to re-

placement account and the balance amount capi-talised)

New Main Account Dr. 2,00,000

To Replacement Account 2,00,000

(Being the value of motors salvaged from old main

used in the reconstruction of main)

Bank Account Dr. 70,000

To Replacement Account 70,000

(Being the amount realised from sale of old materials

credited to replacement account)Revenue Account Dr. 16,35,000

To Replacement Account 16,35,000

(Being the net current cost of replacement

transferred to revenue account)

Working Notes:

1. Current cost of replacement:

Cost of Increase in cost Current

existing main Rate Amount cost

Rs. Rs. Rs.

Materials (3/5 Rs. 15 lacs) 9,00,000 25% 2,25,000 11,25,000

Labour(2/5 Rs. 15 lacs) 6,00,000 30% 1,80,000 7,80,000

Estimated current cost for replacement

of present main (amount to be charged

to replacement account) 19,05,000


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Accounts of Electricity Supply Companies 12.5

2. Additional cost of reconstruction of main (to be capitalised)

Cash cost of re-building new main 40,00,000

Less: Estimated current cost for replacement of existing old main 19,05,000

Additional cost in new main to be capitalised (excluding old motors used 20,95,000

3. Replacement AccountDr. Cr.To Bank A/c 19,05,000 By New Main A/c 2,00,000

By Bank A/c 70,000By Replacement A/c

Balancing figure 16,35,000

19,05,000 19,05,000Question 2

Power Electric Company decides to replace one of its old plant by an improved plant with

larger capacity. The cost of the new plant is Rs. 16,00,000.

Materials and Labour earlier and now are in the ratio of 4 : 6.

Original cost of the old plant is Rs. 3,00,000. Materials cost has gone up by 2 times and

Labour cost by 3 times since then. Old materials worth Rs. 10,000 were used in the

construction of the new plant and Rs. 20,000 were realised from the sale of old materials.

Give the necessary Journal Entries for recording the above transactions.(6 marks) (PE-IINov. 2004)

Journal Entries

Particulars Dr. Cr.Amount Amount

Rs. Rs.Plant account Dr. 7,70,000

To Bank account 7,60,000To Replacement account 10,000

(Being the additional cost incurred and oldmaterials utilized in new plant)Replacement account Dr. 8,40,000

To Bank account 8,40,000

(Being the current cost of replacement)Bank account Dr. 20,000

To Replacement account 20,000(Being the old materials sold)Revenue account Dr. 8,10,000

To Replacement account 8,10,000(Being the balance of replacement accounttransferred to revenue account)

accounting for electricity companies

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